PPP Loan Forgiveness: Next steps for Manufacturers & Supply Chain Companies

Editor’s Note: Anil Grandhi is CEO & Founder of Seattle-headquartered AG FinTax, providing expertise and guidance nationwide to companies across all industries on tax planning, CFO services, wealth management, and the PPP loan forgiveness process. He can be reached at [email protected]

The 2020 PPP Loan program benefited more than 229,000 companies in the manufacturing sector reaching $54 billion. And, in the most recent stimulus package, PPP loan opportunities have been extended in which even more manufacturers and supply chain companies will likely participate. One thing to note: the maximum loan amount has been reduced substantially, from $10 million to $2 million.

Securing the loan is one thing – but making sure you are prepared to receive PPP loan forgiveness is another. Here’s what you need to know.

Terms for PPP loan forgiveness. During the first two days of the loan program, which opens Jan. 11, 2021, only community financial institutions are eligible to apply. After that, the program opens to all industries.

Each recipient must meet certain requirements in order to qualify for the full forgiveness amount.

These include:

• Spending at least 60 percent of the loan proceeds on payroll
• Making good faith effort to maintain similar levels of employment and pay during the loan period as before the pandemic
• Reducing employee salaries by no more than 25 percent during the covered period

In order to be eligible for forgiveness, payroll costs paid and payroll costs incurred, but not yet paid, during the Covered Period or Alternative Payroll Covered Period, if paid by the next regular payroll date.

Employee gross pay includes salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period.

What documentation is required to apply for forgiveness. While you should certainly document everything possible related to your PPP loan, there are certain documents that you will need to submit to your lender in order to be eligible for forgiveness.

• Payroll documentation that shows the cost of payroll during the loan period
• Proof of the average number of FTE employees on payroll
• Proof of payment for eligible operating costs - interest on mortgage payments, rent payments, utility payments, for which service began before February 15, 2020.

The documents that will show this include payroll reports, accounting records, payroll tax filings (Form 941), bank statements, utility bills, lease agreements, and a mortgage loan amortization schedule.

Businesses that received a loan of less than $150,000 can use receive automatic forgiveness by submitting a one-page attestation form in 2021, thanks to passage of a law in late 2020.

When is the right time to apply for PPP Loan Forgiveness? All businesses, including manufacturers and supply chain companies, can start applying now for PPP loan forgiveness but do not be in a hurry to do so—the loan payment is deferred till 10 months from the end of the 24-week covered period of your loan. Forgiveness applications can be submitted any time before the maturity date of the loan, which is either two or five years from loan origination

PPP loans were a lifeline to many companies across manufacturing, logistics and the entire supply chain over this past year. To help get the most out of this program, make sure to follow the loan forgiveness process precisely. For many businesses, it will make sense to work with a tax or financial professional to ensure that they receive the maximum amount of forgiveness possible.

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